Demystifying supply

chain nance*
Insights into the what, why, how, where and who
Advisory
March 2009
Table of contents
The heart of the matter 2
The emerging Supply Chain Finance
(SCF) tool set.
An in-depth discussion 4
SCFwhat it is, why its important,
and how it works.
What this means for your business 10
Reaping the end-to-end benets available
through effectively managed SCF solutions.
2
The heart of the matter
The emerging Supply
Chain Finance (SCF)
tool set.
3
PricewaterhouseCoopers The heart of the matter
Times are tough. Capital is more expensive these days and access to it is more difcult.
Demand is dropping off, customers are paying more slowly and working capital is being
tied up in languishing inventory and slow-moving receivables. As a result, companies are
looking inward for ways to release trapped cash from operations. Going beyond payables
and receivables, todays CFOs and Treasurers are taking a fresh look at how their physical
supply chain is impacting their companies' cash ow and working capital management.
Over 70% of respondents to a recent Aberdeen Group survey said their companies view
working capital optimization as a high priority.
1

For decades we have witnessed companies taking an ineffective now we focus, now
we don't approach to managing their working capital needsfocusing on collections,
payables, and inventory during periods of cash constraints and relaxing, even losing, that
focus during times of easy access to nancing and liquidity. But now, even well-managed
companies are being forced to consider embedding effective working capital management
and associated tools into sustainable processes to eliminate those historic ebbs and ows
and minimize related business risk across their customer and supply chain base.
Rising interest in SCF. Concerned about the rising risk in their supply chains stemming
from the economic stress on suppliers, volatile commodity and energy prices, and broad-
based nancial turmoil, todays executives are actively looking at SCF options in terms
of lowering their overall nancial supply chain costs. We believe they are attracted by
the promise of supply chain nancial savings, increased supply chain stability, and the
efciencies that SCF offers to both buyer and supplier.
Unlocking the value in the supply chain. SCF can include different types of nancing and
payment arrangements between the supply chain partners. This article explores one of the
prominent types of SCF in which a third-party nancier provides liquidity to suppliers by
leveraging their buyers higher credit ratingan arrangement that often involves the use
of a technology platform to automate transactions and provide visibility into the invoice
approval status to all parties involved. This allows companies to unlock the value in the
supply chain in many ways, including:
Extending buyer's Accounts Payables terms
Accelerating seller's access to lower cost capital
Reducing risks imbedded in the supply chain
Enhancing cash forecasting capabilities
Supporting advanced Treasury and Working Capital business strategies
Strengthening buyer-seller relationships
While its true that SCF is not for everyone, it can indeed be a powerful tool for the right
company in the right industry.
1. Aberdeen Group. Working Capital Optimization: Finance and Supply Chain Strategies for Todays Business Environment.
October 2008
4
An in-depth discussion
SCFwhat it is, why
its important, and how
it works.
5
PricewaterhouseCoopers An in-depth discussion
Forty-ve percent of participants in
the Aberdeen Groups study report
that SCF technology has helped to
drive their competitive advantage.
3
As a result of the current credit crunch, we are beginning to see a new rise of scal
discipline emerging in businessone that is as focused on the management of cash as on
the generation of revenue.
In todays world, one of the challenges facing companies is the rising risk in their supply
chains. According to the McKinsey Quarterly, Executives point to the greater complexity
of products and services, higher energy prices, and increasing nancial volatility as
top factors inuencing their supply chain strategies.
2
This ts with our market-based
assessment of where companies face hidden vulnerabilities in their business models.
Exacerbated by todays difcult capital markets, we are seeing increased supply chain
risks due to nancial volatility and its impact on markets.
To combat these growing supply chain risks, many organizations have begun focusing their
efforts on minimizing the capital exposure in their supply chains. But, ironically, these same
companies can actually increase their capital exposure because of these very efforts.
What we see is that companies focus on their individual supply chain issues and take
their own best interests into account rather than understanding the larger picture and
coordinating with their supply chain partners. As a result, they fall into a classic prisoners
dilemmathe optimum solution to minimize capital exposure between buyers and sellers
is to coordinate, but because there is no coordination they work against each other and
end up with a sub-optimal solution.
The maturization of Supply Chain Finance delivers a tool that can help to support business
executives seeking to effectively and holistically manage their companies supply chains. It
continues to be a viable model, particularly in the light of the current credit crisis.
SCFWhat it is and why its important in todays credit crisis. From
PricewaterhouseCoopers perspective, SCF boils down to a balanced approach for
enhancing working capital for both buyers and sellers in a transactionusing an
intermediary tool to link buyers, sellers, and third-party nancing entitiesthereby
reducing supply chain risks/costs and strengthening business relationships. Said another
way, the SCF solution combines a set of technology solutions and services that link all
the parties in the supply chainthe buyers, sellers and providers of nancingin order to
enable end-to-end visibility, lower nancing costs, increase availability, and expedite the
delivery of cash.
SCF solutions can help combat the inherent problems created by more traditional
supply chain working capital enhancement approaches such as factoring, early payment
discounts, accelerated terms, and deferred payment strategies.
2. The McKinsey Quarterly. Managing global supply chains: McKinsey Global Survey Results.
3. Aberdeen Group. The 2008 State of the Market in Supply Chain Finance
6
De-mystifying supply chain nance*
These traditional solutions tend to view working capital enhancement from a single
perspective, either the buyers attempt to defer payment/reduce payment size or
the sellers attempt to accelerate cash collectionoften pitting one side of the
buy/sell transaction against the other. Simply shifting the burden from one party
to the other can add signicant risk to the supply chain, including customer loss,
business continuity risk, supplier viability risk, material cost ination, deteriorating
support, and a host of other issues. Supply chain nance provides an opportunity to
collaborate and create benets for each side of the transaction.
The set of solutions to effectively nance the supply chain is different for each set of
companies in a supply chain situation. We see the benet of SCF as being greatest
in situations where the buyer has access to capital at a lower cost than the seller
and/or where the buyer has a signicant time gap between inventory purchases and
cash receipts from nal sales. In these situationsgiven that one typically has to
give something to get somethingit makes sense for the buyer to use its superior
credit rating to lower overall nancing costs within the supply chain by reducing
risk for the supplier in return for an extension of credit terms, thereby enhancing
the buyers working capital position. When properly structured and effectively
implemented, SCF is a tool that drives benets to buyers and sellers alike.
How it works. While reducing the amount of capital tied up in Accounts Receivable
and minimizing investments in inventories are fairly straightforward keys that will
unlock the value in your supply chain, extending Accounts Payable terms carries the
potential for signicant riskssupplier instability, impact to business continuity, and
eroded service among them.
To manage and minimize the overall risk inherent in extended payable approaches,
leading companies are turning to SCF, a powerful tool that allows companies to
extend the payables cycle in a manner that adds value to both parties in a trade
agreement. Buyers maintain cash liquidity longer and achieve a more stable supply
chain, while sellers gain faster access to lower-cost cash and enjoy improved
business continuity. Cash forecasting effectiveness is enhanced and buyer-seller
relationships are strengthened.
7
PricewaterhouseCoopers An in-depth discussion
To illustrate how the extended payables model works, we have provided an example that
highlights the payable process, the role of the different players involved and the benets
to each party. In this example, the buyer is providing its supply chain the ability to nance
supplier receivables based on the buyers credit ratings. The seller will have the option of
selling its receivables to the funding party in return for immediate cash. To support this,
an appropriate technology platform must be in place to track and manage the end-to-
end invoice and settlement process.
Heres what that cycle looks like:
Buyer transmits
AP file with
approved invoices
On payment date buyer
remits payment to bank
(if financed) or directly
to seller
Seller selects
invoices
for immediate
payment
Bank deposits money
to seller's bank account
with discount
Bank approves
immediate payment
to seller and
receives banking
instructions
BUYER
SELLER
BANK
Seller originally had Net 30 Terms; Terms extended
to Net 60 days; Seller has option to be paid in as
little as two days if it elects to sell the receivable.
G
o
o
d
s

&

s
e
r
v
i
c
e
s
P
a
y
m
e
n
t
1
2
5
4
3
Technology
Platform
8
De-mystifying supply chain nance*
The process begins with the buyer sending an approved accounts payable le to the
selected technology platform. Once the le is uploaded, the seller can access the
platform to view the approved buyer invoices and decide whether to request an early
payment. If early payment is requested, the bank will review and approve the payment
request and send the funds to the sellers bank account on behalf of the buyer. At
invoice maturity date, If the seller has sold the receivable, the buyer remits payment
to the bank; if not, the buyer pays the seller directly.
Four primary players in four key roles. As you can see, there are four primary
players in this model, each with a key role in driving the SCF solution. When
implemented properly, each party should realize multiple benets:
Buyer benets. Because the buyer is using SCF to mitigate the costs for a seller,
it will be well positioned to negotiate better terms and conditions with sellers. As
a result of these negotiated terms/conditions, the buyer will realize a signicant
working capital benet from an extension in payment terms and will free up cash for
use in other critical areas.
Seller benets. The seller is obtaining access to capital at a lower cost through
leveraging the buyers credit rating. Additionally, the seller will see a reduction in
Days Sales Outstanding (DSO) and an improvement in cash forecasting, two key
drivers to effectively navigate through the current credit crunch.
Funding bank benets. Even in todays credit constrained environment, when
banks are not doing much lending, the funding bank will typically earn a higher
return on this type of product than other more common nancing vehicles. Banks
are proponents of this model because its a limited credit risk; the lending periods
are short, it provides an alternative revenue stream, and it opens the door to
potential new business.
Technology platform provider benets . Typically, the system provider earns
revenue when Suppliers sell their invoices early. Additionally, depending on the
provider, there are opportunities for cross-selling other products and services.
9
PricewaterhouseCoopers An in-depth discussion
The bottom line: For companies that have a strong credit rating relative to their suppliers
and are willing to explore alternative working capital strategies, SCF is a powerful tool that
brings benets to multiple parties across the supply chain.
10
What this means for your business
Reaping the end-to-end
benets available through
effectively managed SCF
solutions.
11
PricewaterhouseCoopers What this means for your business
In todays tough times, executives are focused on ensuring cash availability to sustain the
business and outlive the current economic crisis. They are beginning to understand and
appreciate the value to be gained by putting new nancing techniques to work to release
the trapped cash in their supply chain, improve end-to-end visibility, and minimize risk
across the board.
When properly structured and effectively implemented, we believe SCF is a tool that drives
potential benets to buyers and sellers alike by:
Extending buyers Accounts Payables terms
Accelerating sellers access to lower cost capital
Reducing risks imbedded in the supply chain
Enhancing cash forecasting capabilities
Supporting advanced Treasury and Working Capital business strategies
Strengthening buyer-
seller relationships
SCF and your companya
good t? The SCF solution
works best when a buyer
has a favorable credit rating
and can obtain a lower cost
of nancing from the bank
than the sellers traditional
nancing sources. The
SCF model is designed to
support those suppliers that
have working capital issues
and/or are in a distressed
situation. This is especially
relevant given current credit
market conditions. The SCF
solution is most common
with those companies
that have large cost of
goods sold (COGS) with a
signicant time gap between
COGS purchases and nal
product sales; particularly
in such industries as
automotive, manufacturing,
retail and consumer
products.
Our companies are encouraged
to strengthen connections with
external partners including customers,
suppliers, retailers This helps us to
remove barriers within the value chain,
reduce transaction costs and increase
protability. In our view, connecting
and collaborating is a key to gaining
competitive advantage. Above all
else, successful collaboration requires
that each party see the other as a true
partner and their alliance as a win-win
situation. They must also demonstrate
mutual trust of, and respect for, each
others competencies, be willing to
share fairly the benets, burdens and
risks inherent in the relationship, and
have a clear understanding of how
they will work together.
4
Ahmet Drduncu, CEO, H.. Sabanci
Grup A.S.
4. PricewaterhouseCoopers. 11th Annual CEO Survey 2008
12
De-mystifying supply chain nance*
If your company and SCF are a good t, the time to jump on the bandwagon is now,
even though the road is not yet paved in stone. But where do you start and what does
it take to succeed?
Demystifying SCF. Given the complexities and uncertainties inherent in this
benecial working capital management tool, leading companies are turning to external
advisors with specialized knowledge gained working day-to-day in the trenches with
their clients.
These are subject-matter specialists who know what works and what doesnt, and
who are alert to whats on the horizon. Working with such advisors can help you
navigate the maze and emerge with the solution that best supports you and your
supply chain partners.
Action steps for success. While many of the best practices in implementing SCF
solutions have not been fully dened, there are a handful of critical success factors that
we believe should be in place as a company drives towards an effective SCF solution.
To succeed, it is vital to:
Establish a cross-department committee (accounting, procurement, treasury) to
guide the project, address opportunities, and implement solutions
Perform a thorough upfront analysis to identify potential benets and to target
appropriate suppliers
13
PricewaterhouseCoopers What this means for your business
Use enabling technology to enhance efciency and drive process improvements
Communicate and collaborate with trade partners throughout implementation
Discuss alternatives with multiple players and evaluate each solution carefullygetting
buy-in so that change will stick and will deliver your expected ROI
Leverage existing banking partners to capitalize on overall bank relationship
management strategies
Companies that incorporate these actions into their supply chain strategy will be well
positioned to reap the end-to-end benets available through effective SCF solutions.

Prior to entering into a specific SCF transaction, its important for a company to
understand the appropriate accounting implications and consult with independent
accountants on accounting and financial reporting implications.
www.pwc.com/us
2009 PricewaterhouseCoopers LLP. All rights reserved. PricewaterhouseCoopers refers to PricewaterhouseCoopers LLP (a Delaware limited liability partnership) or, as the context
requires, the PricewaterhouseCoopers global network or other member rms of the network, each of which is a separate and independent legal entity. *connectedthinking is a trademark
of PricewaterhouseCoopers LLP (US).

The information contained in this document is provided as is, for general guidance on matters of interest only. PricewaterhouseCoopers is not herein engaged in rendering legal,
accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.. LA-09-0198 VC
This publication is printed on Mohawk Via. It is a
Forest Stewardship Council (FSC) certied stock using
30% post-consumer waste (PCW) ber and manufactured
with renewable, non-polluting, wind-generated electricity.
Recycled paper
To have a deeper conversation
about how this challenge may affect
your business, please contact:
Shyam Venkat
(646) 471-8296
Email: shyam.venkat@us.pwc.com
Eric Cohen
(646) 471-8476
Email: eric.cohen@us.pwc.com
Matthew Field
(678) 419-2313
Email: matt.eld@us.pwc.com